eatontrade
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NEW YORK (CNN/Money) - Burned by a tough October? Delirious with dreams of a rally in December?
Hang on: The notoriously wretched October is winding down, November is just around the corner, and if history is a guide, it should be decent.
Barring a stupendous end of month run up, the major gauges are all set to close in the red in October.
Yet October is also a notorious "bear killer," or turnaround month, according to the Stock Trader's Almanac, and it can usher in a better November, and in some years, a pretty strong November through January run.
November is typically the second best month of the year for the S&P 500, according to the Almanac. It is also the third best month of the year for the Dow industrials and Nasdaq. Additionally, there have only been three down Novembers in the last 14 post-presidential election years, like the one we're in now.
Add to that the fact that the major gauges are at or near technical levels that some analysts say would suggest a bounce, and it all looks reasonably good in the short term. Longer term, the story is different.
"The market probably hit a trading bottom last week, and sentiment is negative enough to suggest we'll see a rally," said Steven Goldman, market analyst at research firm Weeden & Co.
"But on the other hand," he added, "the yield on the 10-year is busting out to a more than six-month high, the consumer is taking a financial and psychological hit from the reality of higher heating bills this winter, and we're near the end of third year of a bull market, which tends to be challenging."
Goldman also said that research shows an end-of-year run for the stock market is stronger when the S&P 500 starts this period with year-to-date gains of closer to 10 percent, and is weaker when it is in a range of down 2.5 percent to up around 4 percent.
As of Thursday's close, the S&P 500 is down 1.4 percent for 2005, thanks to a 2.7 percent decline since the start of October.
"Seasonally, we're at the start of what should be the best six months of the year, but I'm cautious," said Jeffrey Hirsch, editor-in-chief of the Almanac. "There's still the potential for November to be OK, but I've tempered our outlook."
Beyond the technical and seasonal factors, here's a look at why else the stock market may rally in November and the headwinds that could stand in the way.
A still strong economy
Two hurricanes, two interest rate hikes and creeping inflation have hurt the economy this fall, but not to the extent that had been feared. "We've seen a resiliency," said Michael Strauss, chief economist at Commonfund.
This resiliency should help stocks gain modestly in the next month or so, Strauss said, augmented by reasonably strong third-quarter earnings, fiscal stimulus and some moderated fears about energy.
Oil prices currently stand at around $60 a barrel, a level that is worrisome, but an improvement from the $70 a barrel level it hit in the aftermath of hurricanes Katrina and Rita, the analysts said.
Yet, oil and gas prices remain high enough to hurt consumer spending and raise the cost of corporations doing business, Strauss said. Worries have escalated lately about corporations needing to pass on those costs to the consumer.
A slowdown in consumer spending would have a pronounced effect on the economy, as the consumer fuels roughly two-thirds of the economy.
"I'm a bit worried about the consumer; that's one area that could be pinched," said Grace Fey, portfolio manager at Frontier Capital Management, noting that the sentiment on the all-important holiday retail sales picture is very negative.
"The recent run up in short-term interest rates is also a risk," she added, alluding to the jump in the 10-year bond yield.
However, she said that despite these headwinds, stocks have been battered significantly enough to see a modest rally through the end of the year.
Inflation and the Fed
Investors are expecting the Federal Reserve to lift short-term interest rates by another 25 basis points at the conclusion of next week's policy setting meeting, leaving the Fed funds rate at 4 percent. There are 100 basis points in a percentage point.
In fact, according to Fed funds futures, traders think it's more than likely that rates will rise by another 25 basis points at the December and January meetings too.
"Over the past month or so Fed governors have been quite hawkish in their language," Goldman said. "I think they've pretty much prepared the market for continued rising rates."
A bigger question for the market might be the new leadership of the Federal Reserve, said Ken Tower, chief, chief market strategist at CyberTrader.
On Monday, President Bush tapped White House advisor and former Fed governor Ben Bernanke to replace current Fed chairman Alan Greenspan, whose term ends January 31. Bernanke was the front runner for the job, and has credentials that Wall Street is generally comfortable with, the analysts said.
"Just knowing who the new Fed chair is going to be is good for the market," Fey said.
However, how comfortable investors are with him remains to be seen, Tower added, noting that the bond market reaction hasn't been encouraging so far. Bond yields jumped for three days following the news of Bernanke's appointment
"There is no person on the planet who is going to be able to fill Greenspan's spot without a test," Tower said. "I'm not sure that it's a coincidence that the market crash of 1987 happened two months after Greenspan took office."
This is one of the reasons Tower is concerned about the market in 2006.
Yet, for the very short term, namely either November or December, Tower thinks it does seem likely that stocks could rise, particularly with a lot of money still on the sidelines.
"I think we have enough pessimism out there that we can see some kind of bounce in November off the October lows," he added. "There will probably be a rally, but it will be conservative."
Hang on: The notoriously wretched October is winding down, November is just around the corner, and if history is a guide, it should be decent.
Barring a stupendous end of month run up, the major gauges are all set to close in the red in October.
Yet October is also a notorious "bear killer," or turnaround month, according to the Stock Trader's Almanac, and it can usher in a better November, and in some years, a pretty strong November through January run.
November is typically the second best month of the year for the S&P 500, according to the Almanac. It is also the third best month of the year for the Dow industrials and Nasdaq. Additionally, there have only been three down Novembers in the last 14 post-presidential election years, like the one we're in now.
Add to that the fact that the major gauges are at or near technical levels that some analysts say would suggest a bounce, and it all looks reasonably good in the short term. Longer term, the story is different.
"The market probably hit a trading bottom last week, and sentiment is negative enough to suggest we'll see a rally," said Steven Goldman, market analyst at research firm Weeden & Co.
"But on the other hand," he added, "the yield on the 10-year is busting out to a more than six-month high, the consumer is taking a financial and psychological hit from the reality of higher heating bills this winter, and we're near the end of third year of a bull market, which tends to be challenging."
Goldman also said that research shows an end-of-year run for the stock market is stronger when the S&P 500 starts this period with year-to-date gains of closer to 10 percent, and is weaker when it is in a range of down 2.5 percent to up around 4 percent.
As of Thursday's close, the S&P 500 is down 1.4 percent for 2005, thanks to a 2.7 percent decline since the start of October.
"Seasonally, we're at the start of what should be the best six months of the year, but I'm cautious," said Jeffrey Hirsch, editor-in-chief of the Almanac. "There's still the potential for November to be OK, but I've tempered our outlook."
Beyond the technical and seasonal factors, here's a look at why else the stock market may rally in November and the headwinds that could stand in the way.
A still strong economy
Two hurricanes, two interest rate hikes and creeping inflation have hurt the economy this fall, but not to the extent that had been feared. "We've seen a resiliency," said Michael Strauss, chief economist at Commonfund.
This resiliency should help stocks gain modestly in the next month or so, Strauss said, augmented by reasonably strong third-quarter earnings, fiscal stimulus and some moderated fears about energy.
Oil prices currently stand at around $60 a barrel, a level that is worrisome, but an improvement from the $70 a barrel level it hit in the aftermath of hurricanes Katrina and Rita, the analysts said.
Yet, oil and gas prices remain high enough to hurt consumer spending and raise the cost of corporations doing business, Strauss said. Worries have escalated lately about corporations needing to pass on those costs to the consumer.
A slowdown in consumer spending would have a pronounced effect on the economy, as the consumer fuels roughly two-thirds of the economy.
"I'm a bit worried about the consumer; that's one area that could be pinched," said Grace Fey, portfolio manager at Frontier Capital Management, noting that the sentiment on the all-important holiday retail sales picture is very negative.
"The recent run up in short-term interest rates is also a risk," she added, alluding to the jump in the 10-year bond yield.
However, she said that despite these headwinds, stocks have been battered significantly enough to see a modest rally through the end of the year.
Inflation and the Fed
Investors are expecting the Federal Reserve to lift short-term interest rates by another 25 basis points at the conclusion of next week's policy setting meeting, leaving the Fed funds rate at 4 percent. There are 100 basis points in a percentage point.
In fact, according to Fed funds futures, traders think it's more than likely that rates will rise by another 25 basis points at the December and January meetings too.
"Over the past month or so Fed governors have been quite hawkish in their language," Goldman said. "I think they've pretty much prepared the market for continued rising rates."
A bigger question for the market might be the new leadership of the Federal Reserve, said Ken Tower, chief, chief market strategist at CyberTrader.
On Monday, President Bush tapped White House advisor and former Fed governor Ben Bernanke to replace current Fed chairman Alan Greenspan, whose term ends January 31. Bernanke was the front runner for the job, and has credentials that Wall Street is generally comfortable with, the analysts said.
"Just knowing who the new Fed chair is going to be is good for the market," Fey said.
However, how comfortable investors are with him remains to be seen, Tower added, noting that the bond market reaction hasn't been encouraging so far. Bond yields jumped for three days following the news of Bernanke's appointment
"There is no person on the planet who is going to be able to fill Greenspan's spot without a test," Tower said. "I'm not sure that it's a coincidence that the market crash of 1987 happened two months after Greenspan took office."
This is one of the reasons Tower is concerned about the market in 2006.
Yet, for the very short term, namely either November or December, Tower thinks it does seem likely that stocks could rise, particularly with a lot of money still on the sidelines.
"I think we have enough pessimism out there that we can see some kind of bounce in November off the October lows," he added. "There will probably be a rally, but it will be conservative."
Naz
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There is a new scanner coming out that will give live Dow calls throughout the day.It also has intra day market commentry.www.via-trader.com. In the US day trading section.
eatontrade
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alwyn said:
Please could you post his comments ?
Slapshot
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eatontrade
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leovirgo said:
The consensus of a lot of commentary seems to be that once we get past October there is the potential for a rally into the end of the year. Also we are right underneath a critical point at about 10420 corresponding to 1200 on the s&p which apparently if crossed may spark a bout of short covering and start a new medium term move up.
Personally, it seems that the recent earnings have all been excellent - its just that the street were looking for even more in most cases - perhaps unrealistically. Maybe once the froth is over investors will start to wake up to the fact that inspite of several companies missing revenue expectations the results and guidance are still VERY strong and that at these prices stocks should be attractive.
Of course this is all just IMO / hearsay and in no way a recomendation to buy...DYOR etc.
eatontrade
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Briefing.com post from Yahoo Financial..........
Week ending 28-Oct-05 : Weekly Recap - It was another volatile week for the stock market. It was also a solidly positive week.
The major market drivers this week were the announcement of Ben Bernanke as the nominee to succeed Greenspan as Federal Reserve Chairman, and a slew of earnings reports. The reports themselves were good, but there was concern about guidance for the fourth quarter.
On Monday, President Bush announced Ben Bernanke as his choice for the next Fed Chairman. The stock market rallied sharply. There is a belief that Bernanke will take more of a centrist approach to policy as compared to Greenspan's hard line approach. Indeed, Briefing.com agrees that Bernanke may not raise rates as much in 2006 as Greenspan would have been inclined to do. In 2000, Greenspan erred on the side of restraint and raised rates ahead of the recession that began later that year.
The market then shifted attention to earnings reports. Almost 70% of the S&P 500 companies have now reported. Operating earnings are on track for a very good gain of 15% over the same quarter last year. As happens every quarter, nearly two-thirds of companies are reporting earnings above Wall Street expectations. No problem there.
Fourth quarter guidance is another matter. There is extreme sensitivity to any indication from a company that revenue in the fourth quarter will be lower than analysts expect. Texas Instruments reported third quarter profits ahead of expectations Monday after the close, but also gave disappointing guidance for the fourth quarter. The stock dropped sharply on Tuesday and set a negative tone for the broad market. DuPont also gave disappointing guidance. The S&P lost 3 points that day.
Disappointing guidance remained a theme on Wednesday. Amazon.com was the most prominent company to guide fourth quarter revenue estimates lower. The S&P lost 5 points that day.
On Thursday, the market was dealt a blow with the announcement that General Motors had received a subpoena from the SEC regarding accounting practices, with a focus on pension liabilities. That added to the weak tone set the prior two days, and the S&P got slammed for 13 points.
Reassurance came on Friday. Third quarter real GDP growth was reported at a 3.8% annual rate. That was only slightly above the expected 3.6%, but it also marked the tenth straight quarter above the long-term trend of 3.1%. The component breakdown supports forecasts of 3% growth over the next two quarters as well. This reminder that the US economy is actually growing at a very strong pace set a much better tone for the stock market. The S&P surged 20 points on Friday.
The Friday gain was not all due to the GDP data. Underlying sentiment is also improving. The charts show a bottoming pattern. There are plenty of worries, such as high energy prices, but economic growth and profit growth is still above long-term trends.
One legitimate concern is the rise in the 10-year bond yield. This past week it went to 4.58% from 4.38%. The rate increase is understandable given the strength in the economy and inflation concerns. Higher yields reduce the relative value of stocks and are a major reason stocks have been flat this year despite very strong profit growth.
Next week brings many more earnings reports, but earnings season is essentially winding down. Most of the major reports are out. This is the time when earnings season rallies have occurred in the past. That may be part of what happened on Friday. Despite the guidance anxiety this past week, fourth quarter profit forecasts remain near an impressive 15%. The outlook has not changed appreciably.
The fundamentals are still reasonably good. Economic and earnings growth is far better than generally realized.
Week ending 28-Oct-05 : Weekly Recap - It was another volatile week for the stock market. It was also a solidly positive week.
The major market drivers this week were the announcement of Ben Bernanke as the nominee to succeed Greenspan as Federal Reserve Chairman, and a slew of earnings reports. The reports themselves were good, but there was concern about guidance for the fourth quarter.
On Monday, President Bush announced Ben Bernanke as his choice for the next Fed Chairman. The stock market rallied sharply. There is a belief that Bernanke will take more of a centrist approach to policy as compared to Greenspan's hard line approach. Indeed, Briefing.com agrees that Bernanke may not raise rates as much in 2006 as Greenspan would have been inclined to do. In 2000, Greenspan erred on the side of restraint and raised rates ahead of the recession that began later that year.
The market then shifted attention to earnings reports. Almost 70% of the S&P 500 companies have now reported. Operating earnings are on track for a very good gain of 15% over the same quarter last year. As happens every quarter, nearly two-thirds of companies are reporting earnings above Wall Street expectations. No problem there.
Fourth quarter guidance is another matter. There is extreme sensitivity to any indication from a company that revenue in the fourth quarter will be lower than analysts expect. Texas Instruments reported third quarter profits ahead of expectations Monday after the close, but also gave disappointing guidance for the fourth quarter. The stock dropped sharply on Tuesday and set a negative tone for the broad market. DuPont also gave disappointing guidance. The S&P lost 3 points that day.
Disappointing guidance remained a theme on Wednesday. Amazon.com was the most prominent company to guide fourth quarter revenue estimates lower. The S&P lost 5 points that day.
On Thursday, the market was dealt a blow with the announcement that General Motors had received a subpoena from the SEC regarding accounting practices, with a focus on pension liabilities. That added to the weak tone set the prior two days, and the S&P got slammed for 13 points.
Reassurance came on Friday. Third quarter real GDP growth was reported at a 3.8% annual rate. That was only slightly above the expected 3.6%, but it also marked the tenth straight quarter above the long-term trend of 3.1%. The component breakdown supports forecasts of 3% growth over the next two quarters as well. This reminder that the US economy is actually growing at a very strong pace set a much better tone for the stock market. The S&P surged 20 points on Friday.
The Friday gain was not all due to the GDP data. Underlying sentiment is also improving. The charts show a bottoming pattern. There are plenty of worries, such as high energy prices, but economic growth and profit growth is still above long-term trends.
One legitimate concern is the rise in the 10-year bond yield. This past week it went to 4.58% from 4.38%. The rate increase is understandable given the strength in the economy and inflation concerns. Higher yields reduce the relative value of stocks and are a major reason stocks have been flat this year despite very strong profit growth.
Next week brings many more earnings reports, but earnings season is essentially winding down. Most of the major reports are out. This is the time when earnings season rallies have occurred in the past. That may be part of what happened on Friday. Despite the guidance anxiety this past week, fourth quarter profit forecasts remain near an impressive 15%. The outlook has not changed appreciably.
The fundamentals are still reasonably good. Economic and earnings growth is far better than generally realized.
tradesmart
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Pump today – dump tomorrow…?
Some commentators are fantasizing that yesterday’s 172 point rise is the beginning of the bulls year end rally – however I suspect that there is the strong possibility that we may be seeing a pump’n’dump setup similar to that which occurred last April, with a ‘fantastic’ 160+ point one-day rise to give a 3rd peak within the consolidation that didn’t quite hit resistance, followed immediately by a 500 point fall in the next 5 trading days.
Plainly a sustained breakout above 430ish resistance could herald a new bullish phase, but the way the chart looks just now, a sharp ‘dump’ to retest 10000 wouldn’t be too surprising imho….
April and current 60min charts attached…
Some commentators are fantasizing that yesterday’s 172 point rise is the beginning of the bulls year end rally – however I suspect that there is the strong possibility that we may be seeing a pump’n’dump setup similar to that which occurred last April, with a ‘fantastic’ 160+ point one-day rise to give a 3rd peak within the consolidation that didn’t quite hit resistance, followed immediately by a 500 point fall in the next 5 trading days.
Plainly a sustained breakout above 430ish resistance could herald a new bullish phase, but the way the chart looks just now, a sharp ‘dump’ to retest 10000 wouldn’t be too surprising imho….
April and current 60min charts attached…
Attachments
rav700
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tradesmart said:
Even Tom hogguard agrees with you from city index.
I have just been watching his interview on bloomberg
He was quoting that the only reason that there has been such a massive hike in the dow jones is because it is the end of the month and big companies like to show their big portfolios for their so called year end strats.
I guess after that their wil definately be a lot of selling.
Hence overall view:
Monday a possible hike of atleast 50 point and there after a drop of over 300 points by wednesday.....
Let see what happens.
I believe that if there is no break of 10450 by monday then the market will fall pretty heavily....
Happy trading guys
Rav
rav700
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Racer said:
Hi racer,
I think that we will see the last of the bears til the fomc and then all the bulls will kick in after wednesday......
How have you been other wise.....
Hopefully been swing trading the DJ and making loads of money
Take care
Rav
Think you could be right.Racer said:
Long at 10350 and looking for 10600 this week.
Walmart, Verizon, Pfizer, Honeywell and Exxon all up by 1% before the bell.
September PCE up 0.5% and personal income up by 1.7%
Tomorrows 25 basis point increase already factored into the market.
Currently see resistance at 10500 and support at 10300.
Racer
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U.S. incomes up 1.7%, inflation up 0.9% By Rex Nutting
WASHINGTON (MarketWatch) - U.S. incomes and inflation bounced higher in September on the impact of destructive hurricanes, the Commerce Department reported Monday. Incomes rose 1.7% in September after plunging a revised 0.9% in August. Excluding the impact of uninsured losses on property owners, however, incomes rose 0.5% in September after rising 0.3% in August. Meanwhile, prices soared on higher energy prices. The personal consumption expenditure price index rose 0.9% in September, the biggest increase since February 1981. Excluding food and energy prices, however, the core PCE price index rose a more moderate 0.2%. Adjusted for inflation, real spending fell 0.4% in September after dropping 1% in August.
WASHINGTON (MarketWatch) - U.S. incomes and inflation bounced higher in September on the impact of destructive hurricanes, the Commerce Department reported Monday. Incomes rose 1.7% in September after plunging a revised 0.9% in August. Excluding the impact of uninsured losses on property owners, however, incomes rose 0.5% in September after rising 0.3% in August. Meanwhile, prices soared on higher energy prices. The personal consumption expenditure price index rose 0.9% in September, the biggest increase since February 1981. Excluding food and energy prices, however, the core PCE price index rose a more moderate 0.2%. Adjusted for inflation, real spending fell 0.4% in September after dropping 1% in August.
